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Rating action

Scope Ratings GmbH (Scope) has today affirmed the A- issuer rating of Vonovia SE and maintained the Negative Outlook. Scope has also affirmed the A- senior unsecured debt rating and the S-1 short-term debt rating.

The rating affirmation incorporates the correction of errors made in the calculation of Scope-adjusted EBITDA*, funds from operations, free operating cash flow, debt, and market value of total assets. Scope reviewed the ratings and concluded that the corrections of those calculation errors had no impact on the ratings.

The Negative Outlook is maintained and highlights the limited headroom for deviations from Scope’s base case assumptions, which project material deleveraging, annual like-for-like rental growth of 3.0%-3.5% between 2025 and 2027, a gradual increase in capital expenditure, and estimated annual dividend payments of around EUR 0.7bn over the period.

The full list of rating actions and rated entities is at the end of this rating action release.

Key rating drivers

Business risk profile: A (unchanged). Vonovia's business risk profile remains strong, underpinned by the company's unchanged status as Europe's largest residential landlord, with a portfolio of around 535,000 residential units with a reported fair value of EUR 78.5bn as of March 2025. The company’s well-diversified portfolio across regulated European markets – primarily Germany (88% of fair value), with additional exposures to Sweden (8%) and Austria (3%) – ensures recurring rental cash flows and robust market access. Berlin contributed about 25% of net rental income at end-2024.

Operational metrics remain superior, with high occupancy (97.9% as of March 2025), long average lease terms, and accelerating rental income growth (4.3% year-on-year in Q1 2025). The portfolio benefits from prime locations in regions with positive demographics and high liquidity, supported by substantial capital expenditure programmes including EUR 1.2bn targeted for 2025, increasing to EUR 2bn by 2028, focused on efficiency improvements that enhance long-term asset quality and cash flow predictability (ESG factor).

Vonovia exhibits solid business fundamentals reflected in stable like-for-like rental growth, which Scope expects to remain positive at 3.0%-3.5% per annum between 2025 and 2027, supporting robust operating cash generation. The supply/demand imbalance in most of Vonovia's markets has intensified with fewer new residential units being delivered and heightened demand from potential homebuyers displaced by elevated interest rates. Scope expects the EBITDA margin to remain above or close to 75% over the medium term, benefiting from strong fundamental demand dynamics that outstrip supply in the residential segment. This operational excellence, combined with the company's unparalleled scale, diversification and market access, firmly supports the A business risk profile assessment.

Financial risk profile: BBB- (unchanged). Vonovia's financial risk profile reflects the sustained pressure from elevated leverage metrics and the persistent risk that key ratios remain at levels not fully commensurate with the current rating category. The assessment incorporates the company's loan/value ratio of 48% as of end-2024, which has stabilised following significant market value declines but remains above the 45% threshold that would support a higher assessment. Additionally, Vonovia has demonstrated exceptional capital release capabilities through nearly EUR 8bn in transactions over two years, including EUR 3.8bn in disposals during 2024 that exceeded the EUR 3bn target.

The company's debt protection metric remains strong, with an EBITDA interest cover of 3.5x in 2024, though this represents a moderation from historical levels and is projected to decline further to around 3.0x under Scope’s assumptions. Amid the challenging interest rate environment that has materially increased funding costs, Vonovia's strong operational performance and prudent capital allocation provide substantial mitigation. The company benefits from a highly hedged debt portfolio with 98% of debt fixed or hedged as of Q1 2025 and a long average debt maturity of 6.1 years, which limits near-term refinancing risk. Management's clear commitment to maintaining an interest coverage ratio of above 3.5x – reported at 3.7x as of March 2025 – supports the assessment, particularly given recent strategic transactions such as the landmark EUR 1.3bn convertible bond issuance that demonstrates continued access to low-cost capital markets, even during periods of sector stress.

Vonovia's leverage profile, as measured by debt/EBITDA, has improved to 16.4x in 2024 and is projected to continue declining toward the 14x-15x range over the medium term. The assessment also reflects the company's planned increase in annual investment to EUR 2bn by 2028, which entails heightened execution risk while maintaining largely discretionary spending flexibility. Free operating cash flow strengthened to EUR 1bn in 2024, and while the company's expansion plans will pressure this metric, Scope estimates that more than half of the expected capital expenditure will remain discretionary, providing significant flexibility to curtail activities if market conditions deteriorate.

Liquidity: adequate (unchanged). Vonovia’s liquidity remains adequate, with the agency expecting that available sources, including EUR 2.2bn in cash, EUR 3.0bn in undrawn committed credit lines (both as of end-March 2025) and forecasted free operating cash flow of EUR 0.3bn, will cover liquidity uses by approximately 96% for FY 2025. While the coverage ratio has declined from the previous year due to increased capital expenditure targets, Scope notes that a significant portion of these investments is discretionary and can be curtailed if necessary. Scope continues to view positively Vonovia’s proactive approach to refinancing, with the company targeting coverage of refinancing needs 12–18 months in advance amid a more challenging market environment.

Supplementary rating drivers: credit-neutral (unchanged). Supplementary rating drivers have no impact on the issuer rating.

One or more key drivers of the credit rating action are considered an ESG factor.

Outlook and rating sensitivities

The Negative Outlook reflects Vonovia’s persistently high leverage and the ongoing risk that the loan/value ratio will remain above 45%, despite continued asset disposal efforts, improved market conditions and deleveraging measures. The Outlook also underscores the limited headroom for deviations from Scope’s base case assumptions, which anticipate deleveraging, annual like-for-like rental growth of 3.0%-3.5% between 2025 and 2027 and a gradual increase in capital expenditure. In addition, the Outlook incorporates a weakening interest coverage ratio, signalling increased pressure on Vonovia’s debt-servicing capacity.

The upside scenario for the ratings and Outlook is:

1. Loan/value ratio returning below 45%

The downside scenarios for the ratings and Outlook are (individually):

1. Loan/value ratio of persistently at or above 45%
    
2. Proportion of non-domestic net rental income failing to exceed 15% in the medium term, likely driven by limited success in divesting German assets

Debt ratings

The senior unsecured debt rating has been affirmed at A-, at the same level as the issuer rating. As of end-May 2025, Vonovia had partially utilised its EUR 40bn EMTN programme. Senior unsecured debt continues to benefit from an unencumbered asset ratio of 159% (as disclosed by the issuer), which provides a pool of collateral to debt holders.

The short-term debt rating has been affirmed at S-1, based on the underlying A-/Negative issuer rating and supported by the better-than-adequate internally and externally provided liquidity cover, good banking relationships, strong access to diverse funding sources and access to undrawn, committed credit lines, which Scope believes allow the company to address short-term refinancing needs. Vonovia had a non-utilised EUR 3bn commercial paper programme as at end-March 2025.

Environmental, social and governance (ESG) factors

Vonovia’s significant capital and maintenance expenditure programmes to maintain the high run rate for energy will help to keep occupancy high as well as ensure stable and predictable cash flows that allow for further organic growth with rent increases in line with the cities' qualified rent indices.

All rating actions and rated entities

Vonovia SE

Issuer rating: A-/Negative, affirmation

Short-term debt rating: S-1, affirmation

Senior unsecured debt rating: A-, affirmation

*All credit metrics refer to Scope-adjusted figures.

Stress testing & cash flow analysis
No stress testing was performed. Scope Ratings performed its standard cash flow forecasting for the company.

Methodology
The methodologies used for these Credit Ratings and/or Outlook, (General Corporate Rating Methodology, 14 February 2025; European Real Estate Rating Methodology, 2 June 2025), are available on https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
Information on the meaning of each Credit Rating category, including definitions of default, recoveries, Outlooks and Under Review, can be viewed in ‘Rating Definitions – Credit Ratings, Ancillary and Other Services’, published on https://www.scoperatings.com/governance-and-policies/rating-governance/definitions-and-scales. Historical default rates of the entities rated by Scope Ratings can be viewed in the Credit Rating performance report at https://scoperatings.com/governance-and-policies/regulatory/eu-regulation. Also refer to the central platform (CEREP) of the European Securities and Markets Authority (ESMA): http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml. A comprehensive clarification of Scope Ratings’ definitions of default and Credit Rating notations can be found at https://www.scoperatings.com/governance-and-policies/rating-governance/definitions-and-scales. Guidance and information on how environmental, social or governance factors (ESG factors) are incorporated into the Credit Rating can be found in the respective sections of the methodologies or guidance documents provided on https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
The Outlook indicates the most likely direction of the Credit Ratings if the Credit Ratings were to change within the next 12 to 18 months.

Solicitation, key sources and quality of information
The Rated Entity and/or its Related Third Parties participated in the Credit Rating process.
The following substantially material sources of information were used to prepare the Credit Ratings: public domain, the Rated Entity and Scope Ratings' internal sources.
Scope Ratings considers the quality of information available to Scope Ratings on the Rated Entity or instrument to be satisfactory. The information and data supporting these Credit Ratings originate from sources Scope Ratings considers to be reliable and accurate. Scope Ratings does not, however, independently verify the reliability and accuracy of the information and data.
Prior to the issuance of the Credit Rating action, the Rated Entity was given the opportunity to review the Credit Ratings and/or Outlook and the principal grounds on which the Credit Ratings and/or Outlook are based. Following that review, the Credit Ratings and/or Outlook were not amended before being issued.

Regulatory disclosures
These Credit Ratings and/or Outlook are issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0. The Credit Ratings and/or Outlook are UK-endorsed.
Lead analyst: Michel Bove, Director
Person responsible for approval of the Credit Ratings: Marlen Shokhitbayev, Senior Director
The Credit Ratings/Outlook were first released by Scope Ratings on 13 December 2019. The Credit Ratings/Outlook were last updated on 2 July 2024.

Potential conflicts
See www.scoperatings.com under Governance & Policies/Regulatory for a list of potential conflicts of interest disclosures related to the issuance of Credit Ratings, as well as a list of Ancillary Services and certain non-Credit Rating Agency services provided to Rated Entities and/or Related Third Parties.

Conditions of use/exclusion of liability
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